Big UK banks received around 100,000 applications in a single day for a new loan scheme for small businesses.

The Bounce Back Loans scheme went live on Monday, with Barclays seeing 200 applications in the first minute and Lloyds 5,000 within three hours.

It offers loans up to £50,000 and is designed to be simpler and quicker than the existing Coronavirus Business Interruption Loan Scheme (CBILS).

Barclays said its first bounce back loans will be awarded within 24 hours.

CBILS offer loans of up to £5m and are available for companies with a turnover of less than £45m.

However, the loans have come in for criticism by some businesses, especially smaller ones. Banks can often apply their usual lending criteria, which makes it harder for smaller enterprises to qualify while locked down.

On Thursday, the number of CBILS loans agreed was 8,638, down from more than 9,000 the previous week. Of 52,807 loans applied for, almost 28,000 have still to be approved.

Banks have been criticised for delays in handing out loans but have blamed the heavy workload, the need to complete the necessary credit checks and a shortage of staff.

The government insists the new bounce back loans will be easier to apply for. However, UK Finance, which represents banks, emphasised that firms should "think very carefully before taking on new debt".

Of the UK's largest banks, Lloyds Banking Group said it received the most with 17,000 applications so far, while HSBC received 12,830 and 10,000 applied to NatWest. Barclays said it was ready to approve 6,000.

Barclays denied its online system failed, but said that some customers may have to wait. "Due to the extremely high level of demand, some customers will see availability later on today," it said.

Image copyrightGetty ImagesImage caption
There are about 5.8 million firms in the UK with fewer than 50 staff

Who can apply?

While the loans are aimed at smaller businesses and sole traders, with £2,000 to £50,000 on offer, there is no limit on the size of business that can apply.

To qualify, a firm must have been trading on 1 March this year and not have been in financial difficulty. In other words, the loans are not intended to bail out failing businesses.

While these are early days, business leaders have been generally positive about the bounce-back scheme. It "offers real hope" for small firms, says Mike Cherry, head of the Federation of Small Businesses.

Image caption
Empty High Streets have become symbolic of the crisis facing small traders

When will the money be available?

Businesses should apply through the bank with which they have a business account. The Treasury says funds should then be available "within days".

Borrowers answer seven questions on an online form including information about turnover, tax details, bank account and how the lockdown and Covid-19 has impacted your business. Applicants do not have to provide security and personal guarantees.

Ten banks have been accredited to provide the loans. However, the expectation is that because of the simplicity of the process, banks will transfer the money far quicker than CBIL loans.

'The application was very straightforward'

Image copyrightRachel Sweet

The lockdown hit just as Rachel Sweet's one-year-old business was entering its busiest trading period. She also had expansion plans. The bounce-back loans could prove a lifeline, she says, and her application has already gone in, via HSBC.

Bath-based Sweet Drinks sells, promotes and organises tastings based on produce from the West Country. With the summer season and big outdoor events approaching, "we were thinking about taking the business to the next level".

She estimates she lost 60% of her business when lockdown effectively closed the events season. Rachel says: "Given all the hurdles and rejections we were reading about with the business interruption scheme, we decided to wait a little.

"This new scheme looks much more suitable for us. We've got enough money to cover our costs for a while," she said. "We had hoped sales over the next few months would generate enough money to launch a new website and a mail order business."

Six months ago she was thinking of taking out a big bank loan to fund expansion, financing that would have come with a hefty interest rate. That could have made the current situation worse.

The stress levels are high, she says. "But luckily I'm a glass-half-full person, so I'm staying positive and just trying to do my best given the business environment."

The loan application took no time at all, requiring some basic business details, she says. "It was a very straightforward process. I hope to hear by the end of the week. Fingers crossed."

What are the terms?

The government will cover the cost of fees and interest for the first year. Businesses will only begin repaying the loan after 12 months.

All lenders will charge a flat rate of 2.5% and the loans will last up to six years.

This bounce-back rate is likely to be lower than most CBILS as they are less risky. The government is guaranteeing 100% of the loan from lenders if the firm defaults. With CBILS, the guarantee is 80% of the money.

Both the Treasury and banks are keen to emphasise that they are loans that need to be repaid. The tax authorities have promised close inspection of all loans given.